The MCB Scandal

The opposition went up in arms against the huge MCB financial scandal when the matter broke out. But there was no follow-up to this open outcry

Last Friday, magistrates Renuka Dabee and Vijay Appadoo of the Intermediate Court (Criminal Division) delivered the ruling in the matter of the Independent Commission Against Corruption (ICAC) vs the Mauritius Commercial Bank Ltd (MCB). The Court concluded that, based on all the facts and the circumstances of the case, the MCB “has failed to implement proper internal control systems and procedures in relation to Fixed Deposit Accounts held on behalf of the National Pensions Fund. The prosecution has also proved that the failure of the Accused Company to take appropriate measures has rendered possible the commission of two distinct offences of larceny by Mr Lesage and that Mr Lesage also used the floors of the Accused Company in the process of laundering the proceeds of the crime. For these reasons, we find that the prosecution has proved beyond reasonable doubt that the Accused Company has wilfully, unlawfully and criminally failed to take such measures that are reasonably necessary to ensure that the services offered by it were not capable of being used by a person to facilitate the commission of a money laundering offence in breach of sections 3(2) and 8 of ‘The Financial Intelligence and Anti Money Laundering Act’.” The MCB has announced its intention to appeal against this judgement.

It will be recalled that in early 2003 the case of alleged fraud at the MCB, involving the loss of NPF deposits amounting to some Rs880 million came out in public. The MCB stated that they had been siphoned off and/or misappropriated over several years by means of complex transactions with the objective to foil the bank’s internal and external audit trails. It was claimed by the bank’s top management that, unknown to itself, a senior manager of the bank, Robert Lesage, would have acted to divert those funds without the knowledge of the bank. In the court case, which began in 2004 at the Commercial Division of the Supreme Court, Robert Lesage and other defendants were designated as accused parties by the MCB. On his part, Robert Lesage claimed that all the transactions had been conducted by him with prior instruction from his superiors, i.e., the top management, of the bank so that he had no case to answer.

Judgment was delivered in the latter case by a two-judge bench on 30 June 2010. Robert Lesage was condemned to pay in solido with other defendants a sum of Rs 436million and a further sum of Rs 245 million on his sole count, together with interest and costs incurred by the MCB. Robert Lesage decided to appeal to the Board of the Judicial Committee of the Privy Council (Privy Council) against that judgement on the grounds that he had been denied a fair hearing during the trial. The appeal was allowed and the decision of the Supreme Court of Mauritius was quashed, as confirmed by the Registrar of the Privy Council in a communication dated 10th July 2013.

Responding to the Intermediate Court judgement, the MCB has stated in a communiqué that internal controls at the level of the Bank have been consolidated since the fraud involving the NPF deposits came to light and that it would be difficult for such fraud to occur again. It added that the NPF had been duly compensated and no other party has suffered any prejudice as a result of that fraud. No mention is made in the MCB communiqué of the impact of the fraud on shareholder value. On his part, the Governor of the Bank of Mauritius stated to a daily, after quoting the comment of a Kansas City Judge – ‘I have seen many tort cases but this one has been a tortoise case’ — “A verdict after 14 long years does not merit a comment from the regulatory authority. The MCB has had time to grow bigger, and more importantly, more and more robust.”

We do not know how depositors and other investors would respond to the comments coming from a regulator, which together with the Financial Services Commission, has the duty protect the interest of depositors and small time investors, who for the most are not financially literate. Further, they are expected to monitor “the honesty and competency of the managements and operations of banks and other depositories, insurance companies, and certain kinds of pension funds” so as to avoid the insolvencies that might follow from dishonest or incompetent management. Many other Ponzi-like scams have been unearthed since the MCB scandal came to light. Similarly the BAI Group came crashing down in questionable – and politically motivated – circumstances, and it’s the public exchequer which is having to foot the bill to compensate investors in the various BAI schemes to the tune of several hundreds of millions of rupees. We have yet to know whether it is the lack of oversight of regulators or political patronage and interference in the workings of the regulators that ultimately brought about the BAI crash.

Fighting against corruption usually becomes the battle cry of most political parties across the spectrum when in opposition. For instance, the opposition went up in arms against the huge MCB financial scandal when the matter broke out. Its electoral campaign was centred to a great extent on this issue, with promises that it would deal severely with all those who had aided and abetted in the matter. But there was no follow-up to this open outcry. The refusal to lay before the public the nTan report on the scandal that was commissioned still looms large in public memory. Now that the remaining part of the saga is about to unfold, let us hope that some long-awaited answers will come forth during the appeal.